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Dow Within Striking Distance of Record High Level: 4 Picks

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The Dow 30 — one of the equity markets’ most closely watched indexes — commenced September trading on a negative note after two successful months. After ending in negative territory in the first week of this month, the blue-chip index closed in the green on Sep 11. At present, the index is within striking distance of achieving an all-time high.

Despite trade war concerns, a robust U.S. economy and strong earnings results bolstered investors’ confidence in the stock markets enabling the Dow to climb out of the rut. Such factors are likely to pave the way for further upside. Consequently, investment in some of the Dow 30 stocks with favorable Zacks Rank and strong growth potential is likely to bode well.

Dow Approaching All-Time High

On Sep 11, the Dow 30 gained 114 points or a little over 0.4% to close at 25,971.06, after two consecutive days of losing streak. In the first week of September, the index lost 0.2% owing to investors’ apprehensions regarding an impending global trade war.

At present, the blue-chip index is just 2.5% away from its all-time closing high of 26,616.71 recorded on Jan 26. On Aug 27, the Dow 30 closed at 26,049.64, successful break out from the correction territory. Notably, the index closed above 26,000 for the first time since Feb 1. However, it failed to maintain that level in September due to broad-market decline.

Despite severe stock market volatility, the index is up 5.1% year to date. Moreover, half of the total portfolio of 30 stocks has provided positive returns so far this year. A strong bunch of ten stocks have provided positive double-digit returns.

Robust U.S. Economic Fundamentals

The U.S. GDP grew at 4.2% in the second quarter of 2018, marking its highest gain since the third quarter of 2014 and the third-best growth rate since the Great Recession of 2008-2009. The labor market added 201,000 jobs in August. Unemployment rate remains at 3.9%, its 18-year low. Average hourly wage rate increased 0.4% in August. Moreover, in August, wages grew 2.9% on an annualized basis, reflecting its highest level since June 2009.

Strong Consumer and Business Confidence

The Conference Board has reported that its U.S. consumer confidence index for the month of August has jumped to 133.4, marking its highest reading since October 2000. The ISM reported that the U.S. manufacturing index for the month of August stood at 61.3, its highest since May 2004. Notably, consumer spending and manufacturing sector accounts for about 70% and 12% of U.S. economic activity, respectively.

Healthy Earnings Data

U.S. corporates earned record high profits in the first two quarters of 2018. In the first quarter, total earnings of S&P 500 companies are up 24.7% on 8.7% higher revenues. In the second quarter, total earnings of S&P 500 companies are up 25.2% on 8.7% higher revenues. For the third quarter, total earnings of S&P 500 companies are like to up 18.1% on 7.2% higher revenues. (Read More: Looking Ahead to Q3 Earnings Season)

At this stage, we have narrowed down our search to four stocks within the Dow 30, each having either a Zacks Rank #1 (Strong Buy) or 2 (Buy) and strong growth potential.

The chart below shows price performance of our four picks in the last six months.

Microsoft Corp. (MSFT - Free Report) : The stock provided a positive earnings surprise of 11.4% in the trailing four quarters. Microsoft has expected earnings growth of 9.5% for current year. The Zacks Consensus Estimate for the current year has improved by 7.3% over the last 60 days. The stock flaunts a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Caterpillar Inc. (CAT - Free Report) : The stock provided a positive earnings surprise of 31.8% in the last four quarters. Caterpillar has expected earnings growth of 69.3% for current year. The Zacks Consensus Estimate for the current year has improved by 8.4% over the last 60 days. The stock sports a Zacks Rank #1.

Apple Inc. (AAPL - Free Report) : The stock provided a positive earnings surprise of 5.5% in the trailing four quarters. Apple has expected earnings growth of 27.5% for current year. The Zacks Consensus Estimate for the current year has improved by 2.6% over the last 60 days. The stock carries a Zacks Rank #2.

UnitedHealth Group Inc. (UNH - Free Report) : The stock provided a positive earnings surprise of 3.7% in the last four quarters. UnitedHealth has expected earnings growth of 26.3% for current year. The Zacks Consensus Estimate for the current year has improved by 0.8% over the last 60 days. The stock has a Zacks Rank #2.

Wall Street’s Next Amazon

Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.

At the center of everything we do is a strong commitment to independent research and sharing its profitable discoveries with investors. This dedication to giving investors a trading advantage led to the creation of our proven Zacks Rank stock-rating system. Since 1988 it has more than doubled the S&P 500 with an average gain of +25.32% per year. These returns cover a period from January 1, 1988 through November 5, 2018. Zacks Rank stock-rating system returns are computed monthly based on the beginning of the month and end of the month Zacks Rank stock prices plus any dividends received during that particular month. A simple, equally-weighted average return of all Zacks Rank stocks is calculated to determine the monthly return. The monthly returns are then compounded to arrive at the annual return. Only Zacks Rank stocks included in Zacks hypothetical portfolios at the beginning of each month are included in the return calculations. Zacks Ranks stocks can, and often do, change throughout the month. Certain Zacks Rank stocks for which no month-end price was available, pricing information was not collected, or for certain other reasons have been excluded from these return calculations.

Visit performance for information about the performance numbers displayed above.

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